SBP’s forex reserves fall to levels equal to 35 days of imports

By Staff Reporter

KARACHI: The State Bank of Pakistan’s held foreign exchange reserves dropped 8.1 percent to $8.575 billion in the week ended July 22, as the country struggles to manage a long-simmering debt crisis, latest data showed on Thursday.

The central bank said reserves fell on foreign debt payments.

“During the week ended on July 22, 2022 SBP’s reserves decreased by $754 million due to external debt and other payments,” it said in a statement.

Foreign currency reserves have dropped to levels worth just 35 days of imports. By traditional rules of thumb, reserves should cover the equivalent of three months of imports.

The country’s foreign reserves are running out as the government use up its financial firepower to tackle a sliding economy. This puts pressure on the currency as well, which persistently made record lows against the dollar.

Pakistan’s total foreign reserves fell 5.4 percent to $14.415 billion from $15.242 billion a week ago. The reserves of commercial banks declined 1.2 percent to $5.840 billion.

“Situation is alarming. We need to survive another month before the IMF and related funds flow in. Until then FX market sentiment would remain negative and volatility would continue,” said Fahad Rauf, the head of research at Ismail Iqbal Securities.

“However, the improvement in currency post-IMF disbursement would also be steep as the government has tightened the noose around imports, which would improve external account balance in coming months.”

The country has been gripped by a widening current account deficit, combined with fast depleting foreign reserves and domestic political instability has driven a sharp depreciation in the rupee, pushing up import costs.

The country’s balance of payments position deteriorated sharply in FY2022 as the current account deficit ballooned to $17.4 billion from $2.8 billion a year ago amid surging imports.

The current account deficit was $2.3 billion in June, the widest since January 2022. June’s deficit was 59 percent greater than the previous month. It surged by 39 percent in June last year.